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Cypress Reports Second-Quarter 2010 Results

SAN JOSE, Calif., Jul 22, 2010 (BUSINESS WIRE) -- Cypress Semiconductor Corp. (Nasdaq:CY) today announced that revenue for
the 2010 second quarter was $223.0 million, up 10.2% from $202.3 million
for the prior quarter, and up 43.1% from $155.8 million for the year-ago
period.

Cypress recorded GAAP net income of $20.6 million in the 2010 second
quarter, or diluted earnings per share of $0.11. This compares with last
quarter's diluted earnings per share of $0.07 and a diluted net loss per
share in the year-ago second quarter of $0.32.

Non-GAAP1 net income for the 2010 second quarter--excluding
stock-based compensation, acquisition-related charges, restructuring and
other special charges and credits--totaled $48.1 million, or diluted
earnings per share of $0.24. That compares with non-GAAP1
diluted earnings per share of $0.17 for the prior quarter and a diluted
net loss per share of $0.03 for the year-ago second quarter.

"We are pleased to report our fifth consecutive quarter of increased
revenue after the 'Great Recession' that started in Q4 2008," said
Cypress President and CEO T.J. Rodgers. "Revenue increased 10%
sequentially with all divisions growing, led by our Memory and Imaging
Division, which saw strong demand for our high-performance SRAMs from
wireless and wireline networking customers and market share gains with
strategic global accounts. Our mobile handset revenues increased 70%
year-on-year due to strong demand for our programmable products,
including our TrueTouch touchscreen products. In addition, our
PSoC-based OvationONS(TM) optical finger navigation product began to ship
in volume to the mobile handset market late in the quarter, helping to
drive our Emerging Technology Division to 100% sequential growth in Q2.

"Our customers are continuing to provide increased booking visibility
into Q3 and Q4," Rodgers said. "Our book-to-bill at the end of Q2
remained very strong at 1.30, led by our Consumer and Computation
Division. All divisions had a book-to-bill above 1.10.

"Our focus on value-added solutions is allowing us to generate design
wins and strong revenue momentum in large and growing end markets,"
Rodgers continued. "Coupled with a corporatewide focus on gross margin
and operating expenses, this is allowing us to drive substantial
operating and cash flow leverage, which we expect will continue to grow
for the balance of 2010."

+ On a GAAP basis, second-quarter consolidated gross margin was 56.0%,
up 3.4 percentage points from the previous quarter. Our Core
Semiconductor4 gross margin on a GAAP basis was 56.9%.

+ Net inventory at the end of the second-quarter decreased to 82 days,
down 3.4% quarter-on-quarter and 2.5% year-on-year.

+ Cash and investments for the second quarter totaled $308.7 million, or
$1.93 per outstanding share.

Additional second-quarter data and comparisons relevant to Cypress's
business units are presented below:

BUSINESS UNIT SUMMARY FINANCIALS (UNAUDITED)

THREE MONTHS ENDED

July 4, 2010

CCD2

DCD2

MID2

CoreSemi4

EmergingTech.3

Consolidated

REVENUE ($M)

76.3

29.3

112.2

217.8

5.2

223.0

Percentage of total revenues

34.2%

13.1%

50.4%

97.7%

2.3%

100.0%

GROSS MARGIN (%)

On a GAAP basis

56.8%

67.4%

54.2%

56.9%

20.1%

56.0%

On a non-GAAP1 basis

60.0%

70.6%

57.5%

60.1%

23.3%

59.3%

THREE MONTHS ENDED

April 4, 2010

CCD2

DCD2

MID2

Core Semi4

Emerging Tech.3

Consolidated

REVENUE ($M)

74.2

27.0

98.5

199.7

2.6

202.3

Percentage of total revenues

36.7%

13.3%

48.7%

98.7%

1.3%

100.0%

GROSS MARGIN (%)

On a GAAP basis

54.7%

69.3%

48.1%

53.4%

<6.7%>

52.6%

On a non-GAAP1 basis

57.7%

72.2%

51.1%

56.4%

<3.8%>

55.6%

1.

Refer to "Reconciliation of GAAP Financial Measures to Non-GAAP
Financial Measures" and "Notes to Non-GAAP Financial Measures"
following this press release for a detailed discussion of
management's use of non-GAAP financial measures, as well as
reconciliations of all non-GAAP financial measures presented in this
press release to the most directly comparable GAAP financial
measures.

+ Two of Cypress's Emerging Technology Division units achieved their
first $1 million revenue quarter, as projected in the 2009 Annual
Report. The China Business Unit reported its first $2 million quarter in
Q2 while the Optical Navigation Systems (ONS) business unit achieved its
first $1 million quarter. Internal startups Cypress Envirosystems and
AgigA Tech are also expected to achieve their first $1 million revenue
quarters in 2010.

+ Cypress sampled its powerful, new PSoC 5 solution and introduced two
PSoC 5 development kits: the PSoC 5 FirstTouch(TM) Starter Kit and the PSoC
CY8C55 Family Processor Module Kit. PSoC 5 features a high-performance,
32-bit ARM(R) Cortex(TM)-M3 processor and industry-leading analog
capabilities. The solution targets markets such as industrial, medical,
automotive, and consumer products as the central processor, not just a
peripheral controller.

+ Cypress introduced a PSoC 3-based development kit that enables Made
for iPod(R) licensees to quickly and easily design feature-rich
accessories for iPod and iPhone products ranging from health and
wellness products to diagnostics tools.

+ Cypress began sampling the CY832xx family of low-power PSoC 3 devices,
making it easier for designers to integrate programmable digital logic
capabilities into communications, servers and motor control end products.

+ LG Electronics has chosen Cypress's CapSense touch-sensing solution to
control buttons and LEDs in its new "LE" line of LED-backlit
high-definition digital televisions.

+ Cypress introduced the market's first 32-Mbit and 64-Mbit fast
asynchronous SRAMs. The devices feature fast response times and the
industry's smallest footprints. They are ideal for storage servers,
switches and routers, test equipment and military systems.

+ Cypress named Akamai Technologies' chief financial officer, J.D.
Sherman, to its board of directors, expanding its board to eight
members. Sherman, whose background also includes financial management
positions at IBM and CommQuest, adds another strong financial management
perspective to the Cypress board.

+ Cypress's CEO, T.J. Rodgers, announced that the company's San Jose
headquarters was 75% powered on site from renewable energy sources,
including solar panels and fuel cells. The company aims to achieve its
goal of 100 percent energy independence by 2015 through efforts that
could include energy conservation, electricity storage, and the
installation of new and innovative energy sources being developed in
Silicon Valley.

+ Cypress launched the Cypress Developer Community(TM), an online resource
offering technical forums, videos and blogs to enable engineers to share
best design practices when using Cypress's products. The community is
located at www.cypress.com/go/community.

+ Cypress's wafer manufacturing facility in Bloomington, Minn., has been
named a "Trusted Foundry" by the U.S. Department of Defense. This
accreditation means that the factory meets stringent government criteria
for manufacturing classified and unclassified defense products.

+ Cypress Envirosystems, a Cypress subsidiary, has been named one of the
top innovative green companies by the California Public Utilities
Commission. The company's flagship product is a Wireless Pneumatic
Thermostat that enables RF- and Internet-based remote temperature
sensing and control.

ABOUT CYPRESS

Cypress delivers high-performance, mixed-signal, programmable solutions
that provide customers with rapid time-to-market and exceptional system
value. Cypress offerings include the flagship PSoC(R)
programmable system-on-chip families and derivatives such as PowerPSoC(R)
solutions for high-voltage and LED lighting applications, CapSense(R)
touch sensing and TrueTouch(TM) solutions for touchscreens. Cypress is the
world leader in USB controllers, including the high-performance West
Bridge(R) solution that enhances connectivity and performance
in multimedia handsets. Cypress is also a leader in high-performance
memories and programmable timing devices. Cypress serves numerous
markets including consumer, mobile handsets, computation, data
communications, automotive, industrial and military. Cypress trades on
the Nasdaq Global Select Market under the ticker symbol CY. Visit
Cypress online at www.cypress.com.

FORWARD-LOOKING STATEMENTS

Statements herein that are not historical facts and that refer to
Cypress or its subsidiaries' plans and expectations for the remainder of
fiscal year 2010 and the future are forward-looking statements made
pursuant to the Private Securities Litigation Reform Act of 1995. We may
use words such as "believe," "expect," "future," "plan," "intend" and
similar expressions to identify such forward-looking statements that
include, but are not limited to, statements related to the semiconductor
market, the future economic environment, our expected growth in our
handset revenue, the strength and growth of our proprietary and
programmable products, includingTrueTouch, West Bridge and our
PSoC-powered OvationONS optical navigation sensors, our expected product
introductions and the revenue that may result from them, our ability to
further penetrate the industrial, medical, automotive and consumer
products market as the central processor, our expectations regarding our
Q310 revenue and earnings, our expectations regarding our SRAM market
share, positive signs gleaned from the ordering patterns of our
customers, the demand and growth in the markets we serve, the booking
patterns andvisibility provided by our customers, our
expectations regarding product and design wins, our expectations for
sales and profit throughout 2010, our ability to achieve 100% energy
independence by 2015, and our expected revenue from our Emerging
Technology Division. Such statements reflect our current expectations,
which are based on information and data available to our management as
of the date of this release. Our actual results may differ materially
due a variety of uncertainties and risk factors, including but not
limited to the state of and future of the global economy, business
conditions and growth trends in the semiconductor market, our ability to
timely develop and roll out new products, our ability to enter into new
markets with our portfolio of products, whether our products perform as
expected, whether the demand for our proprietary and programmable
products, including especially our TrueTouch, West Bridge, PSoC, and
OvationONS products, is fully realized, whether our product and design
wins result in increased sales, customer acceptance of Cypress and its
subsidiaries' products, seasonality in the markets we serve, our ability
to achieve lower operating expenses and maintain a solid balance sheet,
the actions of our competitors, the behavior of our supply chain, our
ability to manage our business to have strong earnings and cash flow
leverage, factory utilization, whether the expected growth in the
markets we serve materializes, our ability to maintain and improve our
gross margins and realize our bookings, the financial performance of our
subsidiaries and Emerging Technology Division, our ability to outgrow
the market in revenue once the economy recovers and other risks
described in our filings with the Securities and Exchange Commission. We
assume no responsibility to update any such forward-looking statements.

Cypress, the Cypress logo, PSoC, CapSense, PowerPSoC and West Bridge
are registered trademarks of Cypress Semiconductor Corp. Programmable
System-on-Chip, TrueTouch, OvationONS, FirstTouch, and Cypress Developer
Community are trademarks of Cypress Semiconductor Corp. ARM is
registered trademark and Cortex is a trademark of ARM Ltd. Made for iPod
is a trademark of Apple Inc. All other trademarks or registered
trademarks are the property of their respective owners.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

July 4,

January 3,

2010

2010

ASSETS

Cash, cash equivalents and short-term investments (a)

$

278,178

$

299,642

Accounts receivable, net

145,905

86,959

Inventories, net (b)

81,463

91,198

Property, plant and equipment, net

267,646

272,620

Goodwill and other intangible assets, net

46,317

46,968

Other assets

120,526

115,121

Total assets

$

940,035

$

912,508

LIABILITIES AND EQUITY

Accounts payable

$

58,105

$

61,712

Deferred income

108,267

75,881

Income tax liabilities

53,467

46,362

Other accrued liabilities

93,008

98,169

Total liabilities

312,847

282,124

Total Cypress stockholders' equity

628,737

631,587

Noncontrolling interest

(1,549

)

(1,203

)

Total equity

627,188

630,384

Total liabilities and equity

$

940,035

$

912,508

(a)

Cash, cash equivalents and short-term investments do not include $31
million and $33 million of auction rate securities and commercial
paper, which are classified as long-term investments in "Other
assets" as of July 4, 2010 and January 3, 2010, respectively.

(b)

Net inventories included approximately $7 million and $12 million as
of July 4, 2010 and January 3, 2010, respectively related to the
last-time-build program for Cypress's Texas manufacturing facility,
which ceased operations at the end of fiscal 2008. In addition,
inventories include $4 million and $6 million of capitalized
inventories related to stock compensation expense, as of July 4,
2010 and January 3, 2010, respectively.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

ON A GAAP BASIS

(In thousands, except per-share data)

(Unaudited)

Three Months Ended

July 4,

April 4,

June 28,

2010

2010

2009

Revenues

$

223,024

$

202,271

$

155,784

Cost of revenues

98,078

95,784

98,672

Gross margin (a)

124,946

106,487

57,112

Operating expenses:

Research and development (a)

43,106

40,049

48,196

Selling, general and administrative (a)

54,147

51,281

53,069

Amortization of acquisition-related intangibles

722

776

834

Restructuring charges (credits)

(1,167

)

327

1,089

Total operating expenses, net

96,808

92,433

103,188

Operating income (loss)

28,138

14,054

(46,076

)

Interest and other income (expense), net (a)

(1,165

)

730

2,115

Income (loss) before income taxes

26,973

14,784

(43,961

)

Income tax provision

(6,337

)

(2,110

)

(1,324

)

Income (loss), net of taxes

20,636

12,674

(45,285

)

Noncontrolling interest, net of taxes

(183

)

(163

)

(178

)

Net income (loss)

20,453

12,511

(45,463

)

Less: net loss attributable to noncontrolling interest

183

163

178

Net income (loss) attributable to Cypress

$

20,636

$

12,674

$

(45,285

)

Net income (loss) per share attributable to Cypress:

Basic

$

0.13

$

0.08

$

(0.32

)

Diluted

$

0.11

$

0.07

$

(0.32

)

Shares used in net income (loss) per share calculation:

Basic

160,749

158,931

141,107

Diluted

190,342

190,892

141,107

(a) Includes the following credit (expense) related to Cypress's
deferred compensation plan:

Please refer to the accompanying "Notes to Non-GAAP Financial
Measures" for a detailed discussion of management's use of non-GAAP
financial measures.

CYPRESS SEMICONDUCTOR CORPORATION

CONSOLIDATED DILUTED EPS CALCULATION

(In thousands, except per-share data)

(Unaudited)

Three Months Ended

July 4,

April 4,

June 28,

2010

2010

2009

GAAP

Non-GAAP

GAAP

Non-GAAP

GAAP

Non-GAAP

Net income (loss) attributable to Cypress

$

20,636

$

48,078

$

12,674

$

34,107

$

(45,285

)

$

(3,778

)

Weighted-average common shares outstanding (basic)

160,749

160,749

158,931

158,931

141,107

141,107

Effect of dilutive securities:

Stock options, unvested restricted stock and other

29,593

37,015

31,961

39,966

-

-

Weighted-average common shares outstanding for diluted computation

190,342

197,764

190,892

198,897

141,107

141,107

Net income (loss) per share attributable to Cypress - basic

$

0.13

$

0.30

$

0.08

$

0.21

$

(0.32

)

$

(0.03

)

Net income (loss) per share attributable to Cypress - diluted

$

0.11

$

0.24

$

0.07

$

0.17

$

(0.32

)

$

(0.03

)

July 4,

April 4,

June 28,

2010

2010

2009

Average stock price for the three months ended

$

11.70

$

11.52

$

7.95

Common stock outstanding at period end (in thousands)

159,873

161,764

147,557

Includes unvested restricted stock awards of approximately 1.9
million shares at July 4, 2010 and April 4, 2010 and 3.0 million
shares at June 28, 2009.

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands)

(Unaudited)

Three Months Ended

Six Months Ended

July 4,

April 4,

June 28,

July 4,

June 28,

2010

2010

2009

2010

2009

Selected Cash Flow Data
(Preliminary):

Net cash provided by (used in) operating activities

$

46,032

$

38,123

$

5,531

$

84,155

$

(10,273

)

Net cash provided by (used in) investing activities

$

(13,937

)

$

(43,757

)

$

(23,590

)

$

(57,694

)

$

(8,369

)

Net cash provided by (used in) financing activities

$

(60,339

)

$

(20,883

)

$

20,510

$

(81,222

)

$

26,735

Other Supplemental Data
(Preliminary):

Capital expenditures

$

8,533

$

17,872

$

4,907

$

26,405

$

11,455

Depreciation

$

11,947

$

11,461

$

12,951

$

23,408

$

26,531

Notes to Non-GAAP Financial Measures

To supplement its consolidated financial results presented in accordance
with GAAP, Cypress uses non-GAAP financial measures which are adjusted
from the most directly comparable GAAP financial measures to exclude
certain items, as described in details below. Management believes that
these non-GAAP financial measures reflect an additional and useful way
of viewing aspects of Cypress's operations that, when viewed in
conjunction with Cypress's GAAP results, provide a more comprehensive
understanding of the various factors and trends affecting Cypress's
business and operations. Non-GAAP financial measures used by Cypress
include:

-

Gross margin;

-

Research and development expenses;

-

Selling, general and administrative expenses;

-

Operating income (loss);

-

Net income (loss); and

-

Diluted net income (loss) per share.

Cypress uses each of these non-GAAP financial measures for internal
managerial purposes, when providing its financial results and business
outlook to the public, and to facilitate period-to-period comparisons.
Management believes that these non-GAAP measures provide meaningful
supplemental information regarding Cypress's operational and financial
performance of current and historical results. Management uses these
non-GAAP measures for strategic and business decision making, internal
budgeting, forecasting and resource allocation processes. In addition,
these non-GAAP financial measures facilitate management's internal
comparisons to Cypress's historical operating results and comparisons to
competitors' operating results.

Cypress believes that providing these non-GAAP financial measures, in
addition to the GAAP financial results, are useful to investors because
they allow investors to see Cypress's results "through the eyes" of
management as these non-GAAP financial measures reflect Cypress's
internal measurement processes. Management believes that these non-GAAP
financial measures enable investors to better assess changes in each key
element of Cypress's operating results across different reporting
periods on a consistent basis. Thus, management believes that each of
these non-GAAP financial measures provides investors with another method
for assessing Cypress's operating results in a manner that is focused on
the performance of its ongoing operations.

There are limitations in using non-GAAP financial measures because they
are not prepared in accordance with GAAP and may be different from
non-GAAP financial measures used by other companies. In addition,
non-GAAP financial measures may be limited in value because they exclude
certain items that may have a material impact upon Cypress's reported
financial results. Management compensates for these limitations by
providing investors with reconciliations of the non-GAAP financial
measures to the most directly comparable GAAP financial measures. The
presentation of non-GAAP financial information is not meant to be
considered in isolation or as a substitute for the most directly
comparable GAAP financial measures. The non-GAAP financial measures
supplement, and should be viewed in conjunction with, GAAP financial
measures. Investors should review the reconciliations of the non-GAAP
financial measures to their most directly comparable GAAP financial
measures as provided in the accompanying press release.

As presented in the "Reconciliation of GAAP Financial Measures to
Non-GAAP Financial Measures" tables in the accompanying press release,
each of the non-GAAP financial measures excludes one or more of the
following items:

-

Stock-based compensation expense.

Stock-based compensation expense relates primarily to the equity
awards such as stock options and restricted stock. Stock-based
compensation is a non-cash expense that varies in amount from
period to period and is dependent on market forces that are often
beyond Cypress's control. As a result, management excludes this
item from Cypress's internal operating forecasts and models.
Management believes that non-GAAP measures adjusted for
stock-based compensation provide investors with a basis to measure
Cypress's core performance against the performance of other
companies without the variability created by stock-based
compensation as a result of the variety of equity awards used by
companies and the varying methodologies and subjective assumptions
used in determining such non-cash expense.

Cypress sponsors a voluntary deferred compensation plan which
provides certain key employees with the option to defer the
receipt of compensation in order to accumulate funds for
retirement. The amounts are held in a trust and Cypress does not
make contributions to the deferred compensation plan or guarantee
returns on the investment. Changes in the value of the investment
in Cypress's common stock under the plan are excluded from the
non-GAAP measures. Management believes that such non-cash item is
not related to the ongoing core business and operating performance
of Cypress, as the investment contributions are made by the
employees themselves.

-

Restructuring charges.

Restructuring charges primarily relate to activities engaged by
management to make changes related to its infrastructure in an
effort to reduce costs. Restructuring charges are excluded from
non-GAAP financial measures because they are not considered core
operating activities and such costs have not historically occurred
in each year. Although Cypress has engaged in various
restructuring activities in the past, each has been a discrete
event based on a unique set of business objectives. As such,
management believes that it is appropriate to exclude
restructuring charges from Cypress's non-GAAP financial measures,
as it enhances the ability of investors to compare Cypress's
period-over-period operating results from continuing operations.

-

Adjustment for convertible debt.

During the first quarter of fiscal 2009, we adopted new accounting
guidance on convertible debt which specified that Cypress should
separately account for the liability and equity components of the
instruments. The adoption required the retrospective application
of the guidance and we recorded additional non-cash interest
expense. These costs are excluded from the non-GAAP financial
measures because such non-cash expenses have not historically
occurred in every quarter, which would affect the ability of
investors to compare Cypress's period-over-period operating
results. In addition, management does not believe that this item
is indicative of the ongoing operating performance of Cypress's
business.

-

Acquisition-related expense.

Acquisition-related expense primarily includes: (1) impairment of
goodwill, (2) amortization of intangibles, which include acquired
intangibles such as purchased technology, patents and trademarks,
(3) a settlement loss resulted from the cancellation of a
licensing agreement with Simtek following the acquisition, and
(4) earn-out compensation expense, which include compensation
resulting from the achievement of milestones established in
accordance with the terms of the acquisitions. In most cases,
these acquisition-related charges are not factored into
management's evaluation of potential acquisitions or Cypress's
performance after completion of acquisitions, because they are not
related to Cypress's core operating performance. Adjustments of
these items provide investors with a basis to compare Cypress
against the performance of other companies without the variability
caused by purchase accounting.

-

Impairment of assets.

In the second quarter of fiscal 2010, Cypress wrote off the book
value of certain assets as management determined these assets have
no future benefit to Cypress. Cypress excluded this item because
the expense is not reflective of its ongoing operating results.
Excluding this data allows investors to better compare Cypress's
period-over-period performance without such expense.

-

Related tax effect.

Cypress adjusts for the income tax effect that resulted from the
non-GAAP adjustments as described above.